supply ch-5-ss-1233082793473509-2

79
and and Demand Demand P P Q Q S1 D1 D2 D3 S3 S2 OK, I was wrong. It is a matter of OK, I was wrong. It is a matter of supply and demand, and now I think supply and demand, and now I think you you da “man”. da “man”.

Upload: shahi-raz-akhtar

Post on 12-Nov-2014

467 views

Category:

Education


3 download

DESCRIPTION

[email protected]

TRANSCRIPT

Page 1: Supply ch-5-ss-1233082793473509-2

and and

DemandDemand

PP

QQ

S1D1D2

D3

S3

S2

““OK, I was wrong. It is a matter OK, I was wrong. It is a matter of supply and demand, and now of supply and demand, and now I think you I think you da “man”.da “man”.

Page 2: Supply ch-5-ss-1233082793473509-2

ConsumersConsumers and and ProducersProducers Feel Feel Differently About High and Low pricesDifferently About High and Low prices

Producers supply more at the higher price becauseProducers supply more at the higher price becausethe opportunity cost increases if they don’t.the opportunity cost increases if they don’t.

Consumers consume less at the higher price Consumers consume less at the higher price because they now have less money to spend.because they now have less money to spend.

Producers supply less at lower prices. Producers supply less at lower prices.

Consumers consume more at the lower price Consumers consume more at the lower price because they now have more money to spend.because they now have more money to spend.

Page 3: Supply ch-5-ss-1233082793473509-2

LAW OF SUPPLY• As Price Rises…

…Quantity Supplied Rises

• As Price Falls…

…Quantity Supplied Falls

A direct relationship exists between price and quantity supplied

Page 4: Supply ch-5-ss-1233082793473509-2

SUPPLY DEFINED

SUPPLY SCHEDULESUPPLY SCHEDULE

$12345

P QS

CORN

Various AmountsVarious Amounts 520355060

Page 5: Supply ch-5-ss-1233082793473509-2

SUPPLY DEFINED

SUPPLY SCHEDULESUPPLY SCHEDULE

$12345

P QS

CORN

Various AmountsVarious Amounts

A Series of Possible PricesA Series of Possible Prices

…a specified time period…other things being equal

520355060

Page 6: Supply ch-5-ss-1233082793473509-2

5

P

Qo

$5

4

3

2

1

10 20 30 40 50 60 70 80

$54321

60503520 5

P QS

Price of Corn

Quantity of Corn

CORN

Plot the PointsGRAPHING SUPPLY

Page 7: Supply ch-5-ss-1233082793473509-2

P

Qo

$5

4

3

2

1

10 20 30 40 50 60 70 80

$54321

60503520 5

P QS

Price of Corn

Quantity of Corn

CORN

Plot the PointsGRAPHING SUPPLY

Page 8: Supply ch-5-ss-1233082793473509-2

35

P

Qo

$5

4

3

2

1

10 20 30 40 50 60 70 80

$54321

60503520 5

P QS

Price of Corn

Quantity of Corn

CORN

Plot the PointsGRAPHING SUPPLY

Page 9: Supply ch-5-ss-1233082793473509-2

P

Qo

$5

4

3

2

1

10 20 30 40 50 60 70 80

$54321

60503520 5

P QS

Price of Corn

Quantity of Corn

CORN

Plot the PointsGRAPHING SUPPLY

Page 10: Supply ch-5-ss-1233082793473509-2

P

Qo

$5

4

3

2

1

10 20 30 40 50 60 70 80

$54321

60503520 5

P QS

Price of Corn

Quantity of Corn

CORN

Plot the PointsGRAPHING SUPPLY

Page 11: Supply ch-5-ss-1233082793473509-2

SP

Qo

$5

4

3

2

1

10 20 30 40 50 60 70 80

$54321

60503520 5

P QS

Price of Corn

Quantity of Corn

CORN

Plot the Points

Connect the Points

GRAPHING SUPPLY

Page 12: Supply ch-5-ss-1233082793473509-2

SP

Qo

$5

4

3

2

1

10 20 30 40 50 60 70 80

$54321

60503520 5

P QS

Price of Corn

Quantity of Corn

CORN

What if

Supply

Increases?

GRAPHING SUPPLY

Page 13: Supply ch-5-ss-1233082793473509-2

SP

Qo

$5

4

3

2

1

10 20 30 40 50 60 70 80

Price of Corn

Quantity of Corn

$54321

60503520 5

P QS

CORN

8070604530

S’Increase

in

Supply

Increase

in Quantity

Supplied

GRAPHING SUPPLY

Page 14: Supply ch-5-ss-1233082793473509-2

SP

Qo

$5

4

3

2

1

10 20 30 40 50 60 70 80

$54321

60503520 5

P QS

Price of Corn

Quantity of Corn

CORN

What if

Supply

Decreases?

GRAPHING SUPPLY

Page 15: Supply ch-5-ss-1233082793473509-2

SP

Qo

$5

4

3

2

1

10 20 30 40 50 60 70 80

$54321

60503520 5

P QS

Price of Corn

Quantity of Corn

CORN

S’

453020 0 --

Decrease

in

Supply

Decrease

in Quantity

Supplied

GRAPHING SUPPLY

Page 16: Supply ch-5-ss-1233082793473509-2

S

Qo

$5

$4

$3

$2

$1

10 20 30 40 50 60 70 80

$54321

60503520 5

P QS

Price of Corn

Quantity of Corn

CORN

CombiningCombining

withwith

DemandDemand

GRAPHING SUPPLY WITH DEMANDGRAPHING SUPPLY WITH DEMAND

Page 17: Supply ch-5-ss-1233082793473509-2

MARKET DEMAND & SUPPLYMARKET DEMAND & SUPPLY

77

S

Qo

$5

4

$3$3

2

1

2 4 6 8 10 12 14 16

P QD

$5$4$3$3$2$1

2,0004,0007,0007,000

11,00016,000

$5$4$3$3$2$1

12,00010,000

7,0007,0004,0001,000

D

P QS

Price of Corn

Quantity of Corn

CORN

MARKET

CORN

MARKET

Market Clearing Equilibrium

Page 18: Supply ch-5-ss-1233082793473509-2

Shortage of Face Masks for SShortage of Face Masks for SARS

Young Hong Kong ballet dancers wear masks to protectthemselves from SARS. 770 people died from this disease.

Page 19: Supply ch-5-ss-1233082793473509-2

So What to use if there is a shortage?So What to use if there is a shortage?

Page 20: Supply ch-5-ss-1233082793473509-2
Page 21: Supply ch-5-ss-1233082793473509-2

Market Supply Market Supply CurveCurve

QS of Crude OilQS of Crude Oil

QSQS11

S

““ParticularParticularPrice”Price”

$45$45

$11$11$6$6

$20$20

$25$25

QSQS22 QSQS33 QSQS44 QSQS55

Price

Page 22: Supply ch-5-ss-1233082793473509-2

And why is talk so cheap?And why is talk so cheap?Supply is excessive. Supply is excessive.

Cut Supply & you will increase demand.Cut Supply & you will increase demand.

Page 23: Supply ch-5-ss-1233082793473509-2

DETERMINANTS [Shifters] OF SUPPLYDETERMINANTS [Shifters] OF SUPPLY

• 1. Cost of InputsCost of Inputs [wages & raw

materials] • Increase in wages (increases/decreases) supply.

• Ex: A decrease in the price of computer chips (increases/decreases) the supply of

computers.

AS3 AS1 AS2

P

SupplySupply

PPSS11 SS22

Page 24: Supply ch-5-ss-1233082793473509-2

2. Technological ImprovementTechnological Improvement

This lowers production costs & increases “S”increases “S”..Ex: Suppose a new milking machine called ““The Invisible Hand”The Invisible Hand” has a very soothing effect on cows; cows find the new machine so “udderly”“udderly” delightful that they produce 30% more milk30% more milk. This technological advance will cause a shift to the rightshift to the right.

““Can’t wait till Can’t wait till milking time.”milking time.”

Page 25: Supply ch-5-ss-1233082793473509-2

The cow floats on its own pocket of water, as the water bed fits each cow’s bodyfits each cow’s body.They are “cool in the summer and warm in the winter“cool in the summer and warm in the winter.”.” They last 15-20 years. Cost is $150.00.

By conforming to the shape of the cows, the beds give the cows a more comfortablemore comfortablerest. They reduce wear and tearreduce wear and tear on the cows’ joints and prevent swelling andprevent swelling and burningburning of hocks (ankles).

The first onesfirst ones who come back from the milking parlor fill those fill those water bed stalls firstwater bed stalls first. The other late-arriving cows say, . The other late-arriving cows say,

Technological Breakthrough – Cow WaterbedsTechnological Breakthrough – Cow Waterbeds““500 gallons of blood have to circulate thru a cow’s 500 gallons of blood have to circulate thru a cow’s udder to produce nutrients for one gallon of milk.”udder to produce nutrients for one gallon of milk.”

““Mooooooovvvvvveeeeee over, give me that water bed.”Mooooooovvvvvveeeeee over, give me that water bed.”

Waterbedsforcows.comWaterbedsforcows.com

Page 26: Supply ch-5-ss-1233082793473509-2

3. 3. Number of SellersNumber of Sellers

If more firms enter an industry, the supply curve will shift to the (left/right).

• When the American Basketball League began play in 1968, there was a (bigger/smaller)

supply of basketball games each week.

A new professional football league will (increase/decrease) the supply of football games.

ASAS33 ASAS11 ASAS22

Page 27: Supply ch-5-ss-1233082793473509-2

DDaallllaass C ChhaappaarrrraallssI’m going for “3”.

Bigger Supply Bigger Supply of of Basketball Basketball Games in 1968 Games in 1968 with thewith the AABBAA

“Bigger supply of basketball games every week”

Page 28: Supply ch-5-ss-1233082793473509-2

4. EExpectations xpectations about about Future Price Future Price

If oil producers expectexpect future oil prices to decline, they will (increase/decrease) current production.

ASAS33 ASAS11 ASAS22

SupplyOil Prices Expected to decreaseOil Prices Expected to decrease

PP

Page 29: Supply ch-5-ss-1233082793473509-2

5. 5. Subsidies – free moneySubsidies – free money from “G”from “G”

6. TaxesTaxes – take away business profits and decrease supply.

Businesses have their taxes increased which moves the supply curve to the (left/right).

Free money from the government (subsidies) induces suppliers to supply more.

Page 30: Supply ch-5-ss-1233082793473509-2

DETERMINANTS OF SUPPLY

• Cost of Inputs

• Productivity

• Taxes & Subsidies

• Technology

• Price Expectations

• Number of Sellers

Page 31: Supply ch-5-ss-1233082793473509-2

DD22

With Much Higher Gas Prices, What With Much Higher Gas Prices, What Happens In The SUV/RV MarketHappens In The SUV/RV Market

SS11

PP11

PP22

QQ22 QQ11

DD11 8 8 MPGMPG

QSQSQDQD

Page 32: Supply ch-5-ss-1233082793473509-2

Decide if the price of oranges is going to riserise, fallfall, or stay thestay the

samesame.___1. All of the growers meet & agree to grow fewer oranges next year.

___2. Growers plant more acres of orange trees.___3. Orange growers run an advertising campaign promoting oranges as a symbol of good health.___4. One grower [out of thousands] retires and stops growing oranges.___5. Growers develop a bigger and better tasting orange.___6. Orange growers are struck by the disease-causing Mediterranean

fruit fly.

Quantity of OrangesQuantity of Oranges

RR

FFRR

SS

RR

RR

Juicy “Orange” PricesJuicy “Orange” Prices

Page 33: Supply ch-5-ss-1233082793473509-2

““IncreaseIncrease in in DD”” ““Decrease in Decrease in DD”” ““Increase in Increase in SS”” ““Decrease in Decrease in SS””

___1. Decrease in incomeincome on market for used carsused cars.___2. Decrease in incomeincome on market for new carsnew cars.___3. Consumer expectationsConsumer expectations about a price decreaseprice decrease.___4. Producer expectationsProducer expectations about a price decreaseprice decrease.___5. Increase in # of producers# of producers on the market for computerscomputers.___6. Increase in # of consumers# of consumers on the market for used carsused cars.___7. Increase in # of consumers# of consumers on the market for new carsnew cars.___8. Decrease in the price of moviesmovies upon the market for popcornpopcorn.___9. Decrease in business taxesbusiness taxes on the market for computerscomputers.___10. Consumer expectationsConsumer expectations of a shortage of applesapples.___11. Decrease in resource costresource cost on market for computerscomputers.___12. Increase in price of wheatwheat upon market for corncorn.___13. Consumer expectationsConsumer expectations of a shortage of cell phones.___14. Producers expectationsProducers expectations about a price increase.___15. Increase in incomeincome on the market for iPodsiPods.

BBBB

CCCCAA

AACCAA

DDCC

AA

AA

AA

AA

DD

D1 D2

(A)(A) (B)(B) (C)(C) (D)(D)

DD11

DD22

SS SS SS11 SS11SS22

SS22DD DD

TIMERTIMER RATNESTRATNEST

PP22 PP11 PP11PP22

PP11 P2P2 PP22PP11

QDQD1 1 QDQD22 QDQD22 QD1QD1 QDQD11 QD2 QD2 QDQD22 QD1 QD1

Page 34: Supply ch-5-ss-1233082793473509-2

NS 41-53NS 41-5341. Supply – quantities producers offer at each (technique/price).42. The relationship between priceprice and QSQS is (direct/inverse) and the relationship between priceprice and QDQD is (direct/inverse) or opposite.43. The “law of supply”“law of supply” indicates that producers will offer (less/more) at higher prices.

44. In moving along a stable supply/demand curvemoving along a stable supply/demand curve, (income/price) is not held constant.

45. (Inelasic/Elastic) supply-when QS is very responsive to pricevery responsive to price.46. (Inelastic/Elastic) supply-when a change in price has little impact on QSlittle impact on QS.47. The 3-item test for elastic supplyelastic supply is: the item can be made quickly, it tends to be cheap, & it can be produced by (skilled/unskilled) workers.48. The 3-item test for inelastic supplyinelastic supply is: the item cannot be made quickly, it tends to be expensive, & (skilled/unskilled) workers.49. An example of inelastic supplyinelastic supply is (posters/computers/T-shirts).50. An example of elastic supplyelastic supply is (HDTV/computers/T-shirts).51. The supply curve for elastic supplyelastic supply is more (flat/vertical).52. The supply curve for inelastic supplyinelastic supply is more (flat/vertical).53. A decrease in the price of cattle feedcattle feed will cause the (D/S) curve for beefbeef to shift.

Page 35: Supply ch-5-ss-1233082793473509-2

Supply NSSupply NS 61-64 61-64Bushels Demanded Corn Price Bushels Supplied

2626 $5$5 46463232 $4 $4 41413737 $3 $3 37374343 $2 $2 32324848 $1 $1 2929

61. Equilibrium priceEquilibrium price will be ($1/$2/$3/$4/$5). 62. If the priceprice in this market were $2$2, farmers (would/would not) be able to sell all their corn.63. If the price were initially $5price were initially $5, we would expect the price of corn supplied to (increase/decrease) as a result of the price change.

Page 36: Supply ch-5-ss-1233082793473509-2

74. A decrease in incomeincome, if “X” is an inferior goodinferior good would (increase/decrease) (demand/supply), (increase/decrease) price, and (increase/decrease) quantity.75. A decrease in the number number of of consumersconsumers for product “X” will (increase/decrease) (demand/supply), (increase/decrease) price, and (increase/decrease) quantity.76. Producer expectationsProducer expectations that the price of “X”“X” will decrease sharply in the future will (incr/decr) (demand/supply), (incr/decr) price, & (incr/decr) quantity.77. A decrease in the price of a product which is a substitutesubstitute to “X”“X” will (incr/decr) (supply/demand), (incr/decr) price, (incr/decr) quantity.

68. Increase in the price of irrigation equipmentirrigation equipment (resource costresource cost) upon the market for wheatwheat is illustrated by diagram (A/B/C/D). 69. Increase in incomesincomes upon the market for spamspam is illustrated by diagram (A/B/C/D).70. SubsidySubsidy for cancer research being taken away is illustrated by diagram (A/B/C/D).71. Decrease in the price of MM&&MMss upon the market for SSnickersnickers is illustrated by (A/B/C/D).72. Decrease in worker wagesworker wages on the market for textiles is illustrated by (A/B/C/D).73. Increase in the price of camerascameras upon the market for filmfilm is illustrated by (A/B/C/D).

NS 68-77NS 68-77

Page 37: Supply ch-5-ss-1233082793473509-2

NS 78 - 81NS 78 - 81SS22

P2

E2

D2 S2

D2

E2

S2

Q2D2

S2

Q2

78. If demand increasesdemand increases and supply decreasessupply decreases, equilibrium price will (incr/decr/stay the same) & equilibrium quantity will (incr/decr/stay the same).79. If demand decreasesdemand decreases and supply increasessupply increases, equilibrium price will (incr/decr/stay the same) & equilibrium quantity will (incr/decr/stay the same). 80. If the supply and demand curves both increasesupply and demand curves both increase, equilibrium price will (incr/decr/stay the same) & equilibrium quantity will (incr/decr/stay the same). 81. If demand and supply curves both decreasedemand and supply curves both decrease, equilibrium price will (incr/decr/stay the same) & equilibrium quantity will (incr/decr/stay the same).

EE22

*Staying the same means indeterminateindeterminate, that is, the quantity could increaseincrease, decreasedecrease, or stay the samestay the same, depending on the magnitude of the shiftsmagnitude of the shifts.

Page 38: Supply ch-5-ss-1233082793473509-2

5

P

Qo

$5

$4

$3

$2

$1

10 20 30 40 50 60 70 80

$54321

60503520 5

P QS

Price of Corn

Quantity of Corn

CORN

Plot the PointsPlot the Points

GRAPHING SUPPLYGRAPHING SUPPLY [Change in QS][Change in QS]

Page 39: Supply ch-5-ss-1233082793473509-2

P

Qo

$5

$4

$3

$2

$1

10 20 30 40 50 60 70 80

$54321

60503520 5

P QS

Price of Corn

Quantity of Corn

CORN

Plot the PointsPlot the Points

GRAPHING SUPPLYGRAPHING SUPPLY [Change in QS][Change in QS]

Page 40: Supply ch-5-ss-1233082793473509-2

Qo

$5

$4

$3

$2

$1

10 20 30 40 50 60 70 80

$54321

60503520 5

P QS

Price of Corn

Quantity of Corn

CORN

Plot the PointsPlot the Points

GRAPHING SUPPLYGRAPHING SUPPLY[Change in price, so “Change in QS”][Change in price, so “Change in QS”]

Page 41: Supply ch-5-ss-1233082793473509-2

S

Qo

$5

$4

$3

$2

$1

10 20 30 40 50 60 70 80

$54321

60503520 5

P QS

Price of Corn

Quantity of Corn

CORN

Plot the Points

Connect the Points

GRAPHING SUPPLYGRAPHING SUPPLY[Change in price, so “Change in QS”][Change in price, so “Change in QS”]

Page 42: Supply ch-5-ss-1233082793473509-2

S

Qo

$5

$4

$3

$2

$1

10 20 30 40 50 60 70 80

$54321

60503520 5

P QS

Price of Corn

Quantity of Corn

CORN

What ifSupply

Increases?

GRAPHING SUPPLYGRAPHING SUPPLY

Page 43: Supply ch-5-ss-1233082793473509-2

SS11

Qo

$5

$4

$3

$2

$1

10 20 30 4040 50 6060 70 80

Price of Corn

Quantity of Corn

$54321

6252402510

P QS

CORN

82827272606045453030

SS22IncreaseIncrease

inin

SupplySupply

IncreaseIncrease

in QSin QS

GRAPHING SUPPLY [Change in S]GRAPHING SUPPLY [Change in S]

Page 44: Supply ch-5-ss-1233082793473509-2

S

Qo

$5

4

3

2

1

10 20 30 40 50 60 70 80

$54321

60503520 5

P QS

Price of Corn

Quantity of Corn

CORN

What if

Supply

Decreases?

GRAPHING SUPPLY [Change in S]GRAPHING SUPPLY [Change in S]

Page 45: Supply ch-5-ss-1233082793473509-2

SS11

Qo

$5

$4

$3

$2

$1

10 2020 30 4040 50 60 70 80

$54321

63544025 9

P QS

Price of Corn

Quantity of Corn

CORN

SS22

464635352020 33 ----

DecreaseDecrease

inin

SupplySupply

DecreaseDecrease

in QSin QS

GRAPHING SUPPLY [Change in S]GRAPHING SUPPLY [Change in S]

Page 46: Supply ch-5-ss-1233082793473509-2

Price FloorPrice Floor – minimumminimum priceprice [creates surplusessurpluses]

.

$2.50$2.50

SP

Q0 1414 19 2424

D

SurplusSurplus

Such as:Minimum WageMinimum WageAgriculturalAgriculturalPrice SupportsPrice Supports

The price has to be IN IN the house. It can’tbe below the floor.

Some call agricultural pricesupports ““udderudder insanity.” insanity.”

Price Floor-minimum pricePrice Floor-minimum price

QS exceeds QDQS exceeds QD

Millions of gallons per month

1.901.90P

rice

per

gal

lon

Pri

ce p

er g

allo

nEquilibrium price for milk

Page 47: Supply ch-5-ss-1233082793473509-2

Price CeilingPrice Ceiling - maximum maximum priceprice [creates shortagesshortages]

7

SP

o

D

ShortageShortage

Such as:Rent controls in NYCRent controls in NYCWartime price controlsWartime price controlsRock concert pricesRock concert pricesSuper Bowl ticketsSuper Bowl tickets

The price has to be inin the house. It can’t be above the ceiling.

Super Bowl TSuper Bowl Ticketicket P Pricesrices E-BayE-Bay

1967 - $12.001967 - $12.00 2004 - $5002004 - $500 $2-6,000$2-6,000

Reliant Stadium

NFL could raise the price & make another $150 M but the average man couldn’t attend.

2.52.5 33

Price Ceiling-maximum pricePrice Ceiling-maximum price

QD exceeds QSQD exceeds QS

Millions Millions of of Dwellings RentedDwellings Rented

$2,000$2,000

1,2001,200

3.53.5

NYCNYCRent ControlsRent Controls

Page 48: Supply ch-5-ss-1233082793473509-2

Broccoli

“Suppliers produce smaller/ larger quantities at each price.”

““Substitutes in production”Substitutes in production”

I only I only have have 200 200

acresacres

SS33 SS11 S2S2

Change in “Supply” [Curve]Change in “Supply” [Curve]1. “Non-price change” [RATNESRATNESTT]2. Whole supply curve “shifts”[There was a QS change but it was not caused by a change in price]

SCornCorn SS11

PSS22

QS1 QS2

Alternative Output Price ChangeAlternative Output Price Change[[IINNVVEERRSSEE]]

QS3QS3 QS1QS1 QS2QS2

P2

P1

PSS11 SS22

[new football league- bigger “S” of games]

Don’t confuse theseDon’t confuse thesetwo with Chg in QS.two with Chg in QS.

““Supply Shifters” [RATNEST]Supply Shifters” [RATNEST]1. RResource Cost [wages /raw materials ] [IINNVVEERRSSEE]

2. AAlternative Output Prices [IINNVVEERRSSEE]3. TTechnology [DIRECTDIRECT]

4. NNumber of Suppliers [DIRECTDIRECT]

5. EExpectations [about future price] [IINNVVEERRSSEE]

6. SSubsidies [DIRECTDIRECT]

7. TTaxes [IINNVVEERRSSEE]

Page 49: Supply ch-5-ss-1233082793473509-2

Four Possibilities

DD11 DD11 SSAA BB

CCDD

Increase inIncrease insupply of gassupply of gas

Slide RuleSlide RuleAfter introductionAfter introduction

of calculatorof calculator

SSDD11

DD22

[TIMER][TIMER]

[RATNEST][RATNEST]

““D” for flagD” for flagafter 9/11after 9/11

““Increase in Demand”Increase in Demand” “Decrease in Demand”

“Increase in Supply”““Decrease in Suply”Decrease in Suply”

Decr inDecr in““S” of gasS” of gas

DD PP QQ DD PP QQ

SS QQ PPPP SS QQDD

SS11

DD

SS11SS22

$1.85$1.85

$1.00$1.00

QQ1 1 QQ22 QQ2 2 Q Q11

$1.85$1.85

SS11 $1.00$1.00

PP22

PP11PP11

PP22

QQ1 1 QQ22 QQ2 2 QQ11

AfterAfter “Looking “LookingFor Nemo”For Nemo”

Page 50: Supply ch-5-ss-1233082793473509-2

Banana Supply & DemandBanana Supply & Demand

Qo

DD11

Quantity

Pri

ce (

per

po

un

d)

SS11SS22

P

QQ11QQ22

PP11

PP22

Crop Freezing Crop Freezing Damage…Damage…

Page 51: Supply ch-5-ss-1233082793473509-2

American FlagsAmerican Flags

Qo

DD11

Pri

ce (

per

fla

g)

S1P

Q1 Q2

PP11

PP22

DD22

Patriotism Surge after 9/11…Patriotism Surge after 9/11…

Page 52: Supply ch-5-ss-1233082793473509-2

___7. Increase in the price of Apple’s iPodApple’s iPod on the market for Dell’s Digital JukeboxDell’s Digital Jukebox. ___8. Increase in the price of teatea on the market for lemonlemon.___9. Increase in business taxestaxes on the market for SUVsSUVs.___10. Consumers expectConsumers expect a shortage of cell phonescell phones.

““TIMER”[D]TIMER”[D] or or “RATNEST”[S]“RATNEST”[S]

___1. Increase in incomeincome on the market for camcorderscamcorders. ___2. Increase in # of consumers# of consumers on market for computers.___3. Producer expectationsProducer expectations about a price increase.___4. Consumer expectationsConsumer expectations about a price increase.___5. Increase in # of producersproducers on market for digital cameras.___6. Increase in resource costresource cost on the market for bagels.

AAAADDAACCDDAA

BBDDAA

Page 53: Supply ch-5-ss-1233082793473509-2

1. An increase in incomeincome if steak is asteak is a normal goodnormal good would: a. increase D, increase P, & increase Q. b. increase D, increase P, & decrease Q. c. increase S, increase P, & increase Q. d. decrease D, increase P, & increase Q.

2. A decrease in the price of resourcesdecrease in the price of resources used to produce iPods will: a. increase S, increase P, & increase Q. b. increase D, increase P, & increase Q. c. decrease S, decrease P, & decrease Q. d. do none of the above

3. Decrease in price of butterbutter on the market for the substitutesubstitute margarinemargarine: a. increase D, increase P, & decrease Q. b. decrease D, decrease P, & increase Q. c. decrease D, increase P, & decrease Q. d. do none of the above

4. An improvement in technologyimprovement in technology used to produce DVDs will: a. decrease S, increase P, & decrease Q. b. decrease S, increase P, & increase Q. c. increase S, decrease P, & increase Q. d. decrease D, decrease P, & decrease Q.

5. A decrease in the number of consumersdecrease in the number of consumers for Fuzzy Wuzzies: a. decrease S, decrease P, & decrease Q. b. increase D, increase P, & increase Q. c. decrease D, decrease P, & decrease Q. d. decrease D, decrease P, & increase Q.

Effect of Changes in “D” or “S” on Price and QuantityEffect of Changes in “D” or “S” on Price and Quantity

EE11

EE22 EE11

EE22

EE11

EE22

EE22

EE11

Page 54: Supply ch-5-ss-1233082793473509-2

6. A decrease in tastetaste for Fuzzy Wuzzies would: a. increase D, increase P, & increase Q. b. decrease D, increase P, & decrease Q. c. increase S, increase P, & increase Q. d. decrease D, decrease P, & decrease Q.

7. A reduction in the number of firmsnumber of firms producing computers: a. increase S, increase P, & increase Q. b. increase D, increase P, & increase Q. c. decrease S, increase P, & decrease Q. d. decrease S, decrease P, decrease Q.

8. An increase in the price of pancakes, a complementcomplement for syrup would: a. increase D, increase P, & decrease Q. b. decrease D, decrease P, & increase Q. c. decrease D, decrease P, & decrease Q. d. do none of the above

9. A decrease in incomeincome upon the market for spam would: a. decrease S, increase P, & decrease Q. b. decrease S, increase P, & increase Q. c. increase D, decrease P, & increase Q. d. increase D, increase P, & increase Q.

10. Consumer expectationsConsumer expectations that the price of PSP will increase by 50% in the future will: a. decrease S, decrease P, & decrease Q. b. increase D, increase P, & increase Q. c. decrease D, decrease P, & decrease Q. d. decrease D, decrease P, & increase Q.

Effect of Changes in “D” or “S” on Price and QuantityEffect of Changes in “D” or “S” on Price and Quantity

Page 55: Supply ch-5-ss-1233082793473509-2

[D[D –– ““TIMER”; QD TIMER”; QD –– price change of product (inverse)]price change of product (inverse)]

___1. Which of the following will cause an "Increase in Demand""Increase in Demand" for computers? a. decrease in price of computers b. decrease in income c. increase in income d. increase in the price of compu ters

___2. Which of the following will cause an "Increase in QD""Increase in QD" for computers? a. decrease in price of computers b. decrease in income c. increase in income d. increase in price of computers

___3. Which of the following will cause a "Decrease "Decrease in Demand"in Demand" for Lincoln logs? a. increase in price of Lincoln logs b. decrease in price of Lincoln logs c. decrease in # of consumers(marketsize)

___4. Which of the following will cause a "Decrease in QD""Decrease in QD" for Lincoln logs? a. increase in price of Lincoln logs b. decrease in price of Lincoln logs c. decrease in # of consumers (market size)

[S[S –– ““RATNEST”;RATNEST”; QSQS –– price change of product (direct)]price change of product (direct)] ___5. Which of the following will cause an "Increase in Supply""Increase in Supply" for DVDs?

a. decrease in price of DVDs c. decrease in resource cost b. increase in price of DVDs d. expectations of price increase

___6. Which of the following will cause an "Increase in QS""Increase in QS" for DVDs? a. decrease in price of DVDs c. decrease in resource price b. increase in price of DVDs d. expectations of price increase

___7. Which of the following will cause a "Decrease in Supply""Decrease in Supply" for DVDs? a. increase in price of DVDs c. subsidies to suppliers of DVDs b. decrease in price of DVDs d. expectations of price increase

___8. Which of the following will cause a "Decrease in QS""Decrease in QS" for digital cameras? a. increase in price of cameras c. subsidies to suppliers of cameras b. decrease in price of cameras d. expectations of digital camera price increase

CC

AA

CC

AA

CC

BB

DD

BB

d. increase in price of computers

c. decrease in # of consumers

Page 56: Supply ch-5-ss-1233082793473509-2

““IncreaseIncrease in in DD”” ““Decrease in Decrease in DD”” ““Increase in Increase in SS”” ““Decrease in Decrease in SS””

___1. Increase in the price of computers computers on the market for software.software.___2. Decrease in auto worker wagesauto worker wages on the market for autosautos.___3. Decrease in the price Pepsi Pepsi on the market for CokeCoke.___4. DDecrease in the price ofecrease in the price of computer chips computer chips on theon the computer computer marketmarket.

___5. Increase in price of fertilizerfertilizer on the market for wheatwheat.___6. Decrease in government subsidiessubsidies on the market for AIDS researchAIDS research.

___7. Increase in incomesincomes on the market for used clothingused clothing.___8. A new professional soccernew professional soccer league is formed upon the market for soccer gamessoccer games. ___9. Producer expectationsProducer expectations that the price of orange juice will increase 30% in 3 weeks? ___10. Consumer expectationsConsumer expectations that the price of orange juice will increase 30% in 3 weeks?___11. Decrease in price of computerscomputers upon market for monitorsmonitors?

BBCC

CCDDDD

CC

DD

AA

BB

BB

D1 D2

(A)(A) (B)(B) (C)(C) (D)(D)

DD11

DD22

SS SS SS11SS11SS22

SS22DD DD

TIMERTIMER RATNESTRATNEST

PPPP PP PP

AA

Page 57: Supply ch-5-ss-1233082793473509-2

S & D Quiz 1 for “Milk”S & D Quiz 1 for “Milk”

1. Milk workers become unionized and win an increase in wagesincrease in wages.2. A decrease in price of the alternative output cheesedecrease in price of the alternative output cheese affect milk supply.

3. A negative report on the dangers of cholesterol affect the tastetaste for milk.4. Milk demanddemand is affected by an increase of 10 million consumersincrease of 10 million consumers.

5. CookiesCookies, a complement of milka complement of milk, increase in

price and therefore affect the demand for milkdemand for milk. 6. A technological breakthroughtechnological breakthrough is discovered by a BL student who discovers that cows supply more milk if Ave Maria is playing during milking. 7. Milk producers expectMilk producers expect milkmilk prices to decrease 25%prices to decrease 25% in one week.8. Due to a deadly cow plague (caused by too much cow belly dancing), milkmilk availabilityavailability is expectedis expected to shrink by 50% & impact the current demand for milk.

9. SubsidiesSubsidies for milk production are increased by 20 cents per gallon.10. The price of orangeprice of orange juicejuice, a substitutesubstitute for milk, increased by 20%20%.

[[““++ or or ––””; ; ““DD”” or or ““SS””]]

5 Demand Shifters5 Demand Shifters 7 Supply Shifters7 Supply Shifters1. 1. TTasteaste [[directdirect]] 1. 1. RResource costesource cost [wages/raw materials – [wages/raw materials – IINNVVEERRSSEE]]2. 2. IIncome[ncome[normalnormal--directdirect; ; inferiorinferior--IINNVVEERRSSEE] ] 2. 2. AAlternative outputlternative output price changes [price changes [IINNVVEERRSSEE]]3. 3. MMarket size (# of consumers–arket size (# of consumers–directdirect] 3.] 3. T Technology [ echnology [ directdirect]]4. 4. EExpectationsxpectations(Consumer)(Consumer) availability- availability-IINNVVEERRSSE] E] 4. 4. NNumber of suppliers [umber of suppliers [directdirect]] future future income-income-directdirect; future price-; future price-directdirect; ; 5.5. EExpectationsxpectations[producer][producer] about future price[ about future price[IINNVVEERRSSEE]]5.5. R Related good price changeselated good price changes 6. 6. SSubsidies [ubsidies [directdirect]] [[substitutessubstitutes--directdirect;; complementscomplements--IINNVVEERRSSEE]] 7. 7. TTaxes [axes [IINNVVEERRSSEE]]

1. –S 2. +S 3. –D 4. +D 5. –D 1. –S 2. +S 3. –D 4. +D 5. –D 6. +S 7. +S 8. +D 9. +S 10. +D6. +S 7. +S 8. +D 9. +S 10. +D

[How does each situation shift the “D” or “S” curve for milk?]

I love to listen to Ave Maria.

Page 58: Supply ch-5-ss-1233082793473509-2

S & D Quiz 2 for “Milk”S & D Quiz 2 for “Milk”

1. Milk producers hireproducers hire fewer fewer union workersunion workers, , decreasing resource costdecreasing resource cost.2. An inincrease in price crease in price of theof the alternative output cheese alternative output cheese affect milk supply.

3. A positive report on the benefits of milk affect the tastetaste for milk.4. Milk demanddemand is affected by a dedecreasecrease of 20 million consumers of 20 million consumers.

5. CookiesCookies, a a complement complement of milk of milk, decrease

in price & therefore affect the demand for milkdemand for milk. 6. A technological breakthroughtechnological breakthrough is discovered by a BL student who discovers that cows supply more milk if Enya is singing during milking. 7. Milk producers expectMilk producers expect milkmilk prices to increase 25%prices to increase 25% in two weeks.8. Due to a deadly cow plague (caused by too much cow belly dancing), milkmilk availabilityavailability is expectedis expected to shrink by 60% & impact the current demand for milk.

9. SubsidiesSubsidies for milk production are decreased by 20 cents per gallon.10. The price of orange juiceprice of orange juice, a substitutesubstitute for milk, decreased by 20%20%.

[“[“++ or or ––”; “D” ”; “D” or or “S”]“S”]

5 Demand Shifters5 Demand Shifters 7 Supply Shifters7 Supply Shifters1. Taste1. Taste [[directdirect]] 1. Resource cost1. Resource cost [wages/raw materials – [wages/raw materials – IINNVVEERRSSEE]]2. Income[2. Income[normalnormal--directdirect; ; inferiorinferior--IINNVVEERRSSEE] ] 2. Alternative output2. Alternative output price changes [price changes [IINNVVEERRSSEE]]3. Market size (# of consumers–3. Market size (# of consumers–directdirect] 3. Technology [ ] 3. Technology [ directdirect]]4. E4. Expectationsxpectations(Consumer)(Consumer) availability- availability-IINNVVEERRSSE] E] 4. Number of suppliers [4. Number of suppliers [directdirect]] future future income-income-directdirect; future price-; future price-directdirect; ; 5.5. EExpectationsxpectations[producer][producer] about future price[ about future price[IINNVVEERRSSEE]]5. Related good price changes5. Related good price changes 6. Subsidies [6. Subsidies [directdirect]] [[substitutessubstitutes--directdirect;; complementscomplements--IINNVVEERRSSEE]] 7. Taxes [7. Taxes [IINNVVEERRSSEE]]

1. +S 2. -S 3. +D 4. -D 5. +D 1. +S 2. -S 3. +D 4. -D 5. +D 6. +S 7. -S 8. +D 9. -S 10. -D6. +S 7. -S 8. +D 9. -S 10. -D

[How does each situation shift the “D” or “S” curve for milk?]

I love Enya.

Page 59: Supply ch-5-ss-1233082793473509-2

Review forReview forDemand and Demand and

SupplySupply

““You da man”You da man”

Page 60: Supply ch-5-ss-1233082793473509-2

The The Harley HogHarley Hog Circular Flow Circular Flow

Product MarketProduct Market

Resource MarketResource Market

BusinessesBusinesses

Consumer ExpendituresConsumer Expenditures

Land, Labor, Capital, & EntrepreneurLand, Labor, Capital, & Entrepreneur

Rent, Wages, Interest, & ProfitsRent, Wages, Interest, & Profits

HouseholdsHouseholds

Page 61: Supply ch-5-ss-1233082793473509-2

TheThe “Gangsta “Gangsta CarCar” ”

BusinesseBusinessess

Product MarketProduct Market

Resource MarketResource Market

Which flow represents?Which flow represents?A. Consumer expenditures?A. Consumer expenditures?B. Goods and services?B. Goods and services?C. Land, labor, capital, and C. Land, labor, capital, and entrepreneurial ability?entrepreneurial ability?D. Rent, wages, interest, D. Rent, wages, interest, and profits?and profits?HouseholdsHouseholds

33

44

221144

33

““Gangsta” Gangsta” carscars

LaborLabor forfor ““Gangsta Cars”Gangsta Cars”

ChryslerChrysler

30030022

BusinessesBusinessesBusinesses

ChryslerChrysler PlantPlant

11

Circular FlowCircular Flow

Page 62: Supply ch-5-ss-1233082793473509-2

The Circular-Flow DiagramThe Circular-Flow Diagram

HouseholdsHouseholds

Product MarketProduct Market

Resource MarketResource Market

1

2

3

4

Which Flow RepresentsWhich Flow Represents??A. Goods/services?A. Goods/services?B. Consumer expenditures?B. Consumer expenditures?C. Land, labor, capital andC. Land, labor, capital and entrepreneurial ability?entrepreneurial ability?D. Rent, wages, interest, D. Rent, wages, interest, and profits?and profits?BBusinessesusinesses

$$$$

$$ $$

LaborLabor

Fuzzy WuzzyFuzzy Wuzzy

443311

22

BusinessesBusinessesBusinesses

Page 63: Supply ch-5-ss-1233082793473509-2

40. At what letter is there unemploymentunemployment [recessionrecession]?41. What letters represent resources being used in their most productive mannermost productive manner? [full employment, full production, and best available technology]42. What letter represents an improvement in technologyimprovement in technology, therefore a new PPCnew PPC frontier line?43. The (straight line/curve) illustrates the “line of“line of increasing cost”increasing cost”??44. The (straight line/curve) illustrates the “law of constant cost.”“law of constant cost.”45. At what letter would there be the most economic growth inmost economic growth in thethe futurefuture if a country were producing there now?46. What is the opportunity costopportunity cost when moving from “C” to “D”“C” to “D”;; EE toto B B; & do we have to give anything up when moving from F to DF to D?

FF

A,B,C,D,EA,B,C,D,E

GG

AACapitalCapital

ConsumerConsumer nono

AA BBCC GG

DD

EE

CCAAPPIITTAALL

GGOOOODDSS

Consumer Goods

FF

More or better resourcesMore or better resourcesor better technologyor better technology

Page 64: Supply ch-5-ss-1233082793473509-2

Law of Demand [Change in Law of Demand [Change in QDQD]]

QDQD22QDQD11

PricePrice QDQD

IInnvveerrssee relationshirelationshipp

$250.00$250.00

D Reasons For Reasons For Downsloping “D”Downsloping “D” Curve Curve1. Income EffectIncome Effect –current buyers buy more.2. Substitution EffectSubstitution Effect– new buyers now purchase.3. Diminishing MarginalDiminishing Marginal Utility Utility - because buyers of successive units receive less marginal utility, they will buy more only when the price is lowered.

Change in QDChange in QD1. Price changePrice change2. MovementMovement [up/down the demand curve]3. Point to pointPoint to point [along the curve]

““D”D” refers to the “whole curve”.“whole curve”. [“all pricesall prices”]““QD”QD” refers to a “point on the curve”“point on the curve”

based on a “particular price.”“particular price.”

PSPPSP

Page 65: Supply ch-5-ss-1233082793473509-2

LAW OF SUPPLYLAW OF SUPPLY

- As Price As Price increasesincreases

……Q S also Q S also increasesincreases

- As Price - As Price decreasesdecreases

… …QS also QS also decreasesdecreases

DDirectirect relationship between priceprice & QSQS

P2P2

P1P1

QS1QS1 QS2QS2

S

P1P1

P2P2

QS2QS2 QS1QS1

S

Page 66: Supply ch-5-ss-1233082793473509-2

TTastes [directdirect]

IIncomes -Normal [directdirect] & Inferior[iinnvveerrssee]

MMarket Size(# of consumers) [directdirect]

EExpectations of consumers about [future price-directdirect; future income [directdirect]; and availability [iinnvveerrssee]

RRelated Good Price Changes [substitutes-directdirect; complements-iinnvveerrssee]

HelmetsHelmets

PP““TIMER”TIMER”

Page 67: Supply ch-5-ss-1233082793473509-2

““Demand Shifters” [TIMER]Demand Shifters” [TIMER]1. 1. TTaste [aste [directdirect]]2. 2. IIncome [normal-ncome [normal-directdirect] [inferior-] [inferior-iinnvveerrssee]]3. 3. MMarket Size [number of consumers-arket Size [number of consumers-directdirect]]4. 4. EExpectations [of consumers about future price-xpectations [of consumers about future price-directdirect, , about future availability-about future availability-iinnvveerrssee, or about future income–, or about future income–directdirect..5. 5. RRelated Good Prices [substitutes-elated Good Prices [substitutes-directdirect] [complements-] [complements-iinnvveerrssee]]

Changes in “D” [curve]Changes in “D” [curve]1. Non price change [“TIMER”]2. Whole “D” curve shifts[There is a change in “QD” but it isnot caused by a change in “price.”[QD-”singe price”QD-”singe price”; D-”all prices”D-”all prices”]

ComplementComplement[[iinnvveerrssee]]

SubstituteSubstitute[[DirectDirect]]

ButterButter BreadBread BagelsBagelsPP

DD33 DD11 DD33

QDQD33 QDQD11 QDQD22

DD11 DD22

PPPP11

QDQD11 QDQD22

P2

DD11

DD22

DD

PP

Page 68: Supply ch-5-ss-1233082793473509-2

Qo

$5

4

3

2

1

P QD

$54321

1020355580

Price

Quantity of Corn

CORN Plot the PointsPlot the Points

10 20 30 40 50 60 70 80

GRAPHING DEMANDGRAPHING DEMAND[“Change [“Change in in QD”]QD”]

Page 69: Supply ch-5-ss-1233082793473509-2

$100$90$80$70$60$50$50$40$30$20$10

020 4040 6060 7575 100 120120 140 160160 180180 200200 220

Quantity (units of any good or service)

7070 175175

120 =120120 =120

QD=QSQD=QSEE

QDQD QSQS

QDQD QSQS

QSQS QDQD

QSQS QDQD

DD SSPrice FloorPrice Floor

SurplusSurplus

Price CeilingPrice CeilingShortageShortage

DollarDollarPricePrice

If QS>QD; Price DecreasesIf QS>QD; Price DecreasesIf QS<QD; Price IncreasesIf QS<QD; Price IncreasesIf QD=QS; Price Stays SameIf QD=QS; Price Stays Same

Law of Supply and DemandLaw of Supply and Demand

Page 70: Supply ch-5-ss-1233082793473509-2

.

Broccoli

“Suppliers produce smaller/ larger quantities at each price.”

““Substitutes in production”Substitutes in production”

I only I only have have 200 200

acresacres

SS33 SS11 S2S2

Change in “Supply” [Curve]Change in “Supply” [Curve]1. “Non-price change” [RATNESRATNESTT]2. Whole supply curve “shifts”[There was a QS change but it was not caused by a change in price]

SCornCorn SS11

PSS22

QS1 QS2

Alternative Output Price ChangeAlternative Output Price Change[[IINNVVEERRSSEE]]

QSQS11

P2

P1

PSS11 SS22

[new football league- bigger “S” of games]

Don’t confuse theseDon’t confuse thesetwo with Chg in QS.two with Chg in QS.

““Supply Shifters” [RATNEST]Supply Shifters” [RATNEST]1. RResource Cost [wages /raw materials ] [IINNVVEERRSSEE]

2. AAlternative Output Prices [IINNVVEERRSSEE]3. TTechnology [DIRECTDIRECT]

4. NNumber of Suppliers [DIRECTDIRECT]

5. EExpectations [about future price] [IINNVVEERRSSEE]

6. SSubsidies [DIRECTDIRECT]

7. TTaxes [IINNVVEERRSSEE]

QSQS22QSQS33

Page 71: Supply ch-5-ss-1233082793473509-2

Four Possibilities

DD11 DD11 SSAA BB

CCDD

Increase inIncrease insupply of gassupply of gas

Slide RuleSlide RuleAfter introductionAfter introduction

of calculatorof calculator

SSDD11

DD22

[TIMER][TIMER]

[RATNEST][RATNEST]

““D” for flagD” for flagafter 9/11after 9/11

““Increase in Demand”Increase in Demand” “Decrease in Demand”

“Increase in Supply”““Decrease in Suply”Decrease in Suply”

Decr inDecr in““S” of gasS” of gas

DD PP QQ DD PP QQ

SS QQ PPPP SS QQDD

SS11

DD

SS11SS22

$1.85$1.85

$1.00$1.00

QQ1 1 QQ22 QQ2 2 Q Q11

$1.85$1.85

SS11 $1.00$1.00

PP22

PP11PP11

PP22

QQ1 1 QQ22 QQ2 2 QQ11

AfterAfter “Looking “LookingFor Nemo”For Nemo”

Page 72: Supply ch-5-ss-1233082793473509-2

““Change in ”Change in ” ““Change Change inin ” ”

““Change in Demand”Change in Demand”

““Chg in Supply”Chg in Supply”

Non-Price ChangeNon-Price ChangeWhole Curve ShiftsWhole Curve Shifts

[What is not heldconstant in these 4?]

Price ChangePrice Change

PointPoint to to PointPoint

MovementMovement[[IINNVVEERRSSEE]] [[DIRECTDIRECT]]

PP11

PP22

PP22

PP11

QDQD1 1 QDQD22

DD SS

QDQD2 2 QDQD11

QSQS1 1 QSQS22

QSQS2 2 QSQS11

PP11

PP22

PP22

P1P1

SS

D1

DD22DD11

DD22

SS11S2

SS22 SS11

QQ1 1 QQ22 QQ22 QQ11

QQ1 1 QQ22 QQ2 2 QQ11

Page 73: Supply ch-5-ss-1233082793473509-2

Price Changes for SubstitutesSubstitutes & CCoommpplleemmeennttssSubs - DirectSubs - Direct

Dr Pepper

Complements - IComplements - Innvveerrssee

CokeCokePP11

PP22

PP11

PP22

QDQD11 QD QD22

DD

DD DD11

D2D2

DD11 DD22

Alternative Outputs - Alternative Outputs - IInnvveerrsseeSS S1

SS22PP11

PP22 PP

QSQS22 QSQS11

BroccoliBroccoli CornCorn

HelmetsHelmets

MotorcyclesMotorcycles

Page 74: Supply ch-5-ss-1233082793473509-2

““IncreaseIncrease in in DD”” ““Decrease in Decrease in DD”” ““Increase in Increase in SS”” ““Decrease in Decrease in SS””

___1. Decrease in the price of NNintendo intendo DS DS on the market for DSDS gamesgames..

___2. Increase in iPod worker wagesiPod worker wages on the market for iPodsiPods.___3. Increase in the price Dr. Pepper Dr. Pepper on the market for CokeCoke.___4. InIncrease in the price ofcrease in the price of computer chips computer chips on theon the computer computer marketmarket.

___5. Decrease in price of fertilizerfertilizer on the market for wheatwheat.___6. Increase in government subsidiessubsidies on the market for AIDS researchAIDS research.

___7. Decrease in incomesincomes on the market for used clothingused clothing.___8. NNew professional hockeyew professional hockey league is formed upon the market for hockey gameshockey games. ___9. Producer expectations Producer expectations that the price of orange juice will decrease 30% in 3 weeks? ___10. Consumer expectations Consumer expectations that the price of orange juice will decrease 30% in 3 weeks?___11. Decrease in price of computerscomputers upon market for monitorsmonitors?

AADD

DDCCCC

CC

CC

BB

AA

AA

D1 D2

(A)(A) (B)(B) (C)(C) (D)(D)

DD11

DD22

SS SS SS11 SS11SS22

SS22DD DD

TIMERTIMER RATNESTRATNEST

PP PP PP PP

AA

Page 75: Supply ch-5-ss-1233082793473509-2

1. A decrease in incomeincome if spamspam is an inferior good whould: a. increase D, increase P, & increase Q. b. increase D, increase P, & decrease Q. c. increase S, increase P, & increase Q. d. decrease D, increase P, & increase Q.

2. An increase in the price of resourcesincrease in the price of resources used to produce DVD Players will: a. increase S, increase P, & increase Q. b. increase D, increase P, & increase Q. c. decrease S, decrease P, & decrease Q. d. decrease S, increase P, & decrease Q.

3. Decrease in price of butterbutter on the market for the substitute margarinemargarine: a. increase D, increase P, & decrease Q. b. decrease D, decrease P, & increase Q. c. decrease D, increase P, & decrease Q. d. do none of the above

4. An improvement in technologyimprovement in technology used to produce DVDs will: a. decrease S, increase P, & decrease Q. b. decrease S, increase P, & increase Q. c. increase S, decrease P, & increase Q. d. decrease D, decrease P, & decrease Q.

5. An increase in the number of consumersincrease in the number of consumers for Fuzzy Wuzzies: a. decrease S, decrease P, & decrease Q. b. increase D, increase P, & increase Q. c. decrease D, decrease P, & decrease Q. d. decrease D, decrease P, & increase Q.

Effect of Changes in “D” or “S” on Price and QuantityEffect of Changes in “D” or “S” on Price and Quantity

Page 76: Supply ch-5-ss-1233082793473509-2

6. An increase in tastetaste for Fuzzy Wuzzies would: a. increase D, increase P, & increase Q. b. decrease D, increase P, & decrease Q. c. increase S, increase P, & increase Q. d. decrease D, decrease P, & decrease Q.

7. A reduction in the number of firmsnumber of firms producing computers: a. increase S, increase P, & increase Q. b. increase D, increase P, & increase Q. c. decrease S, increase P, & decrease Q. d. decrease S, decrease P, decrease Q.

8. A decrease in the price of pancakespancakes, a complementcomplement for syrupsyrup would: a. increase D, increase P, & decrease Q. b. decrease D, decrease P, & increase Q. c. Increase D, increase P, & increase Q. d. do none of the above

9. An increase in incomeincome upon the market for used carsused cars would: a. decrease S, increase P, & decrease Q. b. decrease S, increase P, & increase Q. c. increase D, decrease P, & increase Q. d. decrease D, decrease P, & decrease Q.

10. Consumer expectationsConsumer expectations that the price of Nintendo DS will increase by 50% in the future will: a. decrease S, decrease P, & decrease Q. b. increase D, increase P, & increase Q. c. decrease D, decrease P, & decrease Q. d. decrease D, decrease P, & increase Q.

Effect of Changes in “D” or “S” on Price and QuantityEffect of Changes in “D” or “S” on Price and Quantity

Page 77: Supply ch-5-ss-1233082793473509-2

[D [D –– ““TIMER”; QDTIMER”; QD –– price change of product(inverse)]price change of product(inverse)]

___1. Which of the following will cause a ““Decrease in Demand"Decrease in Demand" for Seven jeans? a. decrease in price of Seven jeans b. decrease in income c. increase in income d. increase in the price of compu ters

___2. Which of the following will cause a ““Decrease in QD"Decrease in QD" for Seven jeans? a. decrease in price of Seven jeans b. decrease in income c. increase in income d. increase in price of Sevens

___3. Which of the following will cause an “ “Increase Increase in Demand"in Demand" for Seven jeans? a. increase in price of Seven jeans b. decrease in price of Seven jeans c. decrease in # of consumers(marketsize)

___4. Which of the following will cause an “ “Increase in QD“ Increase in QD“ for Seven jeans? a. increase in price of Seven jeans b. decrease in price of Seven jeans c. decrease in # of consumers(marketsize)

[S [S –– ““RATNEST”; QSRATNEST”; QS –– price change of product (direct)]price change of product (direct)] ___5. Which of the following will cause an ““Decrease in Supply"Decrease in Supply" for PSPs?

a. decrease in price of PSPs c. decrease in resource cost b. increase in price of PSPs d. expectations of price increase

___6. Which of the following will cause an ““Decrease in QS"Decrease in QS" for PSPs? a. decrease in price of PSPs c. decrease in resource price b. increase in price of PSPs d. expectations of price increase

___7. Which of the following will cause a ““Increase in Supply"Increase in Supply" for PSPs? a. increase in price of PSPs c. subsidies to suppliers of PSPs b. decrease in price of PSPs d. expectations of price increase

___8. Which of the following will cause a “ “Increase in QS"Increase in QS" for PSPs? a. increase in price of PSPs c. subsidies to suppliers of PSPs b. decrease in price of PSPs d. expectations of a PSP price increase

BB

DD

CC

BB

DD

AA

CC

AA

d. increase in price of Sevens

c. increase in # of consumers

7 Revised

of PSPsfor PSPs

for PSPs

for PSPs

Page 78: Supply ch-5-ss-1233082793473509-2

Practice “Supply Quiz”Practice “Supply Quiz” 1. Which would cause a “decrease in supply”“decrease in supply” for MP3 Players? a. decrease in the price of MP3s b. increase in the price of MP3s c. decrease in MP3 resource cost d. producer expectations of a price increase

2. Which would cause a “decrease in QS”“decrease in QS” for MP3s? a. decrease in the price of MP3s b. increase in the price of MP3s c. decrease in MP3 resource cost d. producer expectations of a price increase

3. Which would cause an “increase in supply”“increase in supply” for MP3 Players? a. decrease in the price of MP3 Players b. increase in the price of MP3s c. decrease in MP3 resource cost d. producer expectations of a price increase4. Which would cause an “increase in QS”“increase in QS” for MP3s? a. decrease in price of MP3s b. increase in price of MP3s c. decrease in MP3 resource cost d. producer expectations of a price increase

5. An increase in the price of asparagus will (increase/decrease)

the supply of the alternative outputalternative output peas.6. A 50% decrease in the price of “computer chips”“computer chips” will (increase/decrease) the (supply/QS) for “computers”.“computers”.7. Which would cause an “increase in supply”“increase in supply” for MP3 Players? a. increase in wages for MP3 Player workers. b. subsidies($100 per computer) are given to MP3 Player companies. c. subsidies for MP3 Player makers being taken away.

Page 79: Supply ch-5-ss-1233082793473509-2